How To Budget: Passively Allocating Income
Is there an easy set-and-forget approach to allocating income to your expenses? Of course! The equations I discuss in this video form the fundamental backbone to the way I allocate my income among my expenses. The equation itself is simple enough, but it is vital that you factor in the correct information when creating your allocation.
The three key scenarios used in the video to illustrate passive income allocation are:
1. Already budgeting (general)
2. Starting a budget with a $0 balance
3. Starting a budget with a positive balance
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What Would You Do With $10K?
Financial peace of mind is something everyone would love to have. But what actually is it? It was not until I answered the $10k question for myself before I started to understand what financial peace of mind really requires. Hint: it's not more money!
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Your Balance Tells A Story!
What is that number you see in your account really telling you? It has helped me a great deal to view that number not as a single figure, but as the total of many different smaller numbers that each provide their own little nuance to the overall story! Approach your balance like you approach a book: one page at a time.
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How To Budget: Accruing Balances
After determining how much you are going to allocate to each expense item and generating a balance by inputting what you have spent, it is time to take the next crucial step: accruing balances over consecutive pay cycles.
An effective budget will keep track of your account balance. It does this by adding the balance of your current pay cycle to the accrued balance of the previous pay cycle.
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How To Budget: Tracking Income, Expenses & Balance
An effective budget will track three broad pieces of information: your income, expenses and balance.
There is also a second order of information that your budget will track which will not only give you a more comprehensive picture of your finances, but also a deeper understanding of just what comprises your bank balance.
The key point to remember here is that the reason to apply this type of framework to your money is so that you can understand your financial situation as described by your balance, rather than just assessing your situation by observing a number in an account.
It is like the difference between looking at the cover of a book and actually reading the book!
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How To Budget: Allocating Your Income
Budgeting can be approached from numerous different angles. In this video I provide a basic demonstration of how you can dynamically allocate income on a pay check to pay check basis in a way that enables you to maximise the value of every dollar that enters your bank account. Not only will you begin to understand just how easy it is to meet the financial demands of the moment, but you will see how simple and fun it can be to forecast exactly how you will meet your financial goals and obligations in the future.
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